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FISCAL POLICIES


for exploitation which attracted investment, thinking that they could withdraw preferential terms once a project was up and running. This, however, discouraged future investment. If governments only had a few projects, they could encourage rapid development to get an injection of revenue to quickly increase spending capacity.


As minerals and petroleum were exhaustible assets, development policies had to convert these assets into other assets in the form of government revenue, social development projects and the advancement of a society’s human resources.


The right fiscal tools Governments could use a variety of


fiscal instruments to obtain revenue from resource development. Bonuses from bidding for contracts are common in the petroleum sector, and royalties can be charged as a percentage of gross production or as a flat charge. Corporate income tax is popular given its familiarity to all business sectors. Although the traditional profit and loss basis of this form of tax is hard to apply it could jeopardize the economic viability of a project, since it encourages companies to borrow to invest. However the interest on the loan is a tax deduction whereas the investment of a company’s equity is not. Taxes can be levied on the “rent” which is the value of the resource after the cost of production and a “normal” return on capital. A final fiscal instrument can


derive from the participation of state- owned companies in development projects.


Governments generally look to take between 40 and 60 per cent of mineral development revenue while those figures rise to between 65 and 85 per cent for petroleum development. However, imperfections in the administration of revenue collection and other difficulties generally mean governments actually get a lower percentage of the available revenue. This is partly because taxation regimes are often difficult to administer and badly designed, such as by dividing revenue collection among different government departments which operate separately and do not co-ordinate their activities.


The group of participants and resource persons pictured in Vienna;


The IMF participated in the Extractive Industries Transparency Initiative (EITI) to serve as a guide for setting up transparent fiscal regimes and implementation processes.


However, many issues have to be resolved by governments and the IMF can assist in resolving them. Approximately 60 countries – a third of the IMF’s membership – are dependent on extractive industry revenue, most of them relying on petroleum revenue but some also relying on mining and others on a combination of the two areas.


The Parliamentarian | 2013: Issue Three | 213


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